Commodity markets continued to gain in October as investor sentiment stayed positive with the likelihood of further rounds of quantitative easing gaining momentum.
In determining commodity prices over the long term horizon, fundamental supply and demand dynamics are expected to take priority over macroeconomic data as the global economy continues to mend.
Nelson Louie, global head of commodities at Credit Suisse Asset Management, says: "Fundamental factors drove much of the strong returns in October. While we expect fundamentals to play an increasingly strong role as economic conditions continue to normalise, the importance of global macroeconomic developments cannot be underestimated. While the exact implications of the efforts to aid economic recoveries taking place in developed economies are unclear, these actions suggest that the odds of greater than expected inflation over time have increased."
The Dow Jones-UBS Commodity Index Total Return rose 4.98 per cent in October, bringing the year-to-date performance to 5.92 per cent. Overall, 13 of the 19 index constituents increased in value.
Agriculture commodities were pushed higher by tight supply levels and poor weather conditions – seen most prevalently in cotton and sugar.
Economically sensitive commodities, especially those in the industrial metals complex, were mixed on varied macroeconomic data. Zinc increased by 10.06 per cent while aluminium and nickel finished the month lower, down 0.71 per cent and 1.87 per cent, respectively.
The precious metals sector, the best performing group year-to-date, had another positive month. As further quantitative easing measures moved closer to fruition, gold and silver rallied in anticipation of a weaker US Dollar. Gold and silver both finished higher in October, returning 3.68 per cent and 12.58 per cent, respectively. The sector gained on heightened uncertainty regarding the global outlook, coupled with rising fears of global fiat currency debasement.
